Good morning,
Kushner in the closed door hot seat
We’re in for a risky week if the movements of markets through last night’s Asian session is anything to go by. The dollar has moved to its lowest level against the yen for 5 months with the greenback also losing ground against euro and sterling although by a lesser extent.
Today sees Donald Trump’s son-in-law Jared Kushner sit down in a closed door session with the Senate Intelligence Committee over possible ties between the Trump campaign and the Russian state. Once again, these moves will only heighten the pressure on the USD’s inability to run higher in the absence of the Trump trade; without political impetus on trade, healthcare, tax and regulation there is little within the dollar that traders want anything to do with. The only way that the dollar turns around it seems is via an improving data picture and while the IMF may have told us over the weekend that the global economic outlook is improving, that is not happening in the US.
Households under pressure ahead of UK GDP
Unfortunately, the story remains the same in the UK with the post-Brexit impact on the wider economy once again being shown in a multitude of data points. Wednesday’s GDP number will be the most talked about release of course – we foresee growth in Q2 mirroring Q1’s expansion of 0.2% with the imbalances of poor construction and manufacturing being bailed out by the services sector all too likely – but a household spending survey over the weekend by IHS showed that household finances had fallen to their worst level since July 2014.
Market expectations of an interest rate hike in the UK by the end of the year currently sit at a 39% probability, down from the 50-50 odds before last week’s poor consumer price inflation figure. While we think that we are coming to the end of inflation pressures in the UK that were born out of the devaluation of the pound following the EU referendum, we are not able to say that they are over yet. Another poor inflation number however and we would think that those of a hawkish disposition i.e. looking for higher interest rates on the Bank of England’s Monetary Policy Committee may have trouble justifying their thoughts.
Needless to say, sterling has not been able to pick itself up off the mat against the euro following the single currency’s jump higher last week. A poor GDP reading on Wednesday will more likely have an impact on GBPUSD rather than GBPEUR we think given the move on Thursday and the subsequent slight overvaluation of the euro.
The Day Ahead
As for today, the data calendar is rather quiet with preliminary PMIs from France, Germany and the Eurozone throughout the morning. Have a great day and a better weekend.
Jeremy Cook, Chief Economist